Howson Couriers is analysing the possible acquisition of Norwich restaurants. Neither firm has debt. The forecasts of Howson shows that the purchase would increase its annual after tax cash flow by $425,000 indefinitely. The current market value of Howson is $8.8 million. The current market value of Norwich is $22 million. The appropriate discount rate for the incremental cash flow is 8%. Howson is trying to decide whether it should offer 35% of its stock or $12 million in cash to Norwich.

What is the cost to Howson for the stock option alternative?

a) $11,000,675

b) $12,639,375 B is correct

c) $11,015,009

d) $12,445,500